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Now the Bush administration is to notify Congress on Monday of its intent to conclude the deal, as Mr Bush lands in Riyadh.

The deal comes as America’s top commander in Iraq, General David Petraeus, revealed that attacks in Iraq linked to Iranian explosive devices had sharply increased in recent days.

He said violence caused by "explosively formed projectiles" was up by a factor of two or three in recent days.

"Frankly, we are trying to determine why that might be," he said.

Speaking while visiting US troops in Kuwait, Mr Bush singled out Iran and Syria for their involvement in attacks in Iraq.

He said Syria "needs to further reduce the flow of terrorists, especially suicide bombers" while Iran had to stop supporting the militia groups that attacked Iraqi and coalition forces, and kidnapped and killed Iraqi officials.

"Iran’s role in fomenting violence has been exposed - Iranian agents are in our custody, and we are learning more about how Iran has supported extremist groups with training and lethal aid," he said.

However, Arab diplomats warn that even the most loyal US allies face rising Islamist sympathies in their own countries and a concerted effort by Teheran to boost diplomatic and trade links with its near neighbours.

The Gulf states’ mostly pro-western rulers recognise the danger that a nuclear-armed Iran would pose, but are reluctant to risk infuriating its fundamentalist regime, or be seen siding with Israel in the dispute over Teheran’s nuclear programme.

"We know Iran is a threat," said one Arab diplomat, speaking on condition of anonymity.

"It is by no means a friendly country to the Arab world. But President Bush has to give us something to be in this camp of so-called moderation."

Riad Kahwaji, director of the Dubai-based Institute for Near East and Gulf Military Analysis, said Mr Bush "will have to sell himself as the real superpower, with a real vision," in order to regain influence lost over the last few years.

"Nobody in the region here is happy about what Iran is doing," he said.

"But at the same time nobody is willing to put his neck out for the Americans."

The Gulf states, which face Iran across the stretch of water through which much of the world’s oil is shipped, are ruled by Sunni Muslim governments, but Iran’s religious Shia regime is widely seen as the guardian of the millions of Shia who also live in Iraq, Kuwait, Bahrain, Saudi Arabia and Lebanon - the so-called "Shia crescent".

Now Teheran is enjoying a thawing in relations in the region as the Sunni-ruled states adjust to life in the shadow of an increasingly powerful Iran.

The Iranian regime has trading relationships worth £10bn a year with its neighbours and appears to be pushing to strengthen those ties.

There is also growing tolerance of Mahmoud Ahmadinejad, Iran’s president, who was last month formally invited by Saudi Arabia - a key US ally - to attend the hajj, the annual Muslim pilgrimage.

Saudi’s foreign minister, Saud al-Faisal, said last week that relations with Iran would continue regardless of US demands.

"We have relations with Iran and we talk with them, and if we felt any danger we have links... that allow us to talk about it," he said. "So we welcome any issue the president raises, and we will discuss them from our point of view."

For the first time, Iran was last month invited to join a meeting of the Gulf Co-operation Council, which is considering a proposal from Mr Ahmadinejad for a free-trade agreement, an effort to counteract US influence.

An Arab diplomat said: "These were very initial steps and they have to do with every country’s estimation of the balance of power in the region. It is not linked directly with the Iranian-US struggle."

With concern over Iran’s nuclear ambitions still rising, International Atomic Energy Agency chief Mohamed El Baradei has this weekend travelled to Iran to meet Mr Ahmadinejad, the head of Iran’s atomic agency and its chief nuclear negotiator.

His visit was described as "positive" and "helpful for Iran" by a senior Iranian legislator, Alaeddin Boroujerdi.

Mr Bush, whose visit began in Kuwait today, met there with his top Iraq commander, General David Petraeus, and praised US troops for reducing levels of violence and returning "hope" to Baghdad.

He said the US military is on track to withdraw 20,000 troops from Iraq by mid-year, but refused to comment on further reductions.

He is due tonight to travel to Bahrain to meet King Hamad bin Isa al-Khalifa.

He will also visit the United Arab Emirates, where he is to give a major speech on efforts toward democracy, and travel to Saudi Arabia before ending his tour by meeting the Egyptian president, Hosni Mubarak, in the Sinai resort town of Sharm el-Sheikh on Wednesday.

He will also use his meetings with Arab leaders to try to convince Gulf states to help further his campaign for an Israeli-Palestinian peace deal before his presidency ends next January.

During his visit to Israel, Mr Bush made some of his strongest statements yet on the need to end the Israeli occupation of lands captured after the 1967 war and create a Palestinian state, and cited a 2002 Saudi peace initiative as part of that deal.

Arab nations then pledged full normalisation of relations with Israel in exchange for the establishment of a Palestinian state based on the pre-1967 borders, with East Jerusalem as its capital and a "just" settlement for Palestinian refugees.

Mr Bush has called upon Arab states to "reach out" to Israel and Israeli officials say they are willing to begin steps on the Saudi initiative if there are further gestures from the Arab world along the way.